A better way to calculate the value of your time

It’s both fascinating and useful to calculate the value of your time. Financial freedom gives you options and flexibility. But without time, that means nothing. Time is a precious resource that we should spend wisely. But you already know this — we’ve written about it quite a bit.

Knowing the value of your time is helpful for a variety of reasons:

If you’re a freelancer, it can help you decide on gigs.

It can help you decide whether a frugal habit is worth it.

It might convince you to pay someone to help you with tasks.

There’s a pretty standard method for calculating the value of your time. Simply figure out your hourly wage by dividing your income by the number of hours you work. That’s easy enough, but there are a few problems with that approach:

You don’t get paid for your free time. You’re only paid for the time you spend working. So the better question might be: What is your free time worth?

You might not enjoy your job. I hated the low-paying job I had during my first year of college, and I didn’t want to work any more than I had to. So while I wouldn’t give up an hour of my free time to earn an extra $5.75 at that job, I would have spent an hour on some frugal task that saved me $5.75 — maybe even less.

It doesn’t consider how busy you are. The value of your free time should also depend on how much of it you have available.

Not all time is valued the same. As a freelancer, when I take a vacation, I lose money. So the value of my time is actually in the negative. And I’m okay with that because, dammit, sometimes you need a vacation. At the same time, I would not wait in line for an hour to save $30 on something because I hate to wait in line.

Ever heard that fun fact that Bill Gates is so rich, if he found a $100 bill in the street, it wouldn’t be worth his time to pick it up? I’ve always thought that was silly. First, it takes a quarter of a second to bend over and pick up that bill. Even if he’s “on the clock,” he’s not trading in that time for anything — he’ll be paid whether he picks it up or not. Plus, at this point Bill Gates’ income is passive. He earns money in his sleep. So picking up that bill would still be an extra $100 on top of whatever he makes. It’d still be a drop in the bucket to him, but you get the idea.

Calculate a better value of your time

When I came across Clearer Thinking’s “time worth” tool, I figured it was another standard hourly wage calculator. But once I started reading, I found out that it’s actually a pretty detailed and personalized survey on how you value your free time.

Here’s how they describe it:

“This tool will ask a series of questions to help you estimate how much money each hour is worth to you, so that you can make wiser decisions about how to spend that time. It’ll also provide you with a customized report based on your results that highlights any inconsistencies in your answers and makes concrete suggestions for applying your newfound knowledge in your daily life.”

Basically, it’s designed to estimate how much you value an additional hour of your time (your “free time,” in so many words, or the time you spend on top of your current schedule).

“So if you currently work 35 hours a week, for instance, this tool will estimate how much money you’d need to put in a 36th hour of work. Here’s another way to think of the same idea: the additional hour value of your time is the amount of money you’d pay to free up an hour of time.”

Who should use it

They write that the tool was designed “with employed individuals in mind.”

So if you’re unemployed or retired, you might not find the tool very accurate. After all, your free time is measured by different considerations. They add another caveat:

“If you have very low savings or an unstable income, the calculator may overestimate the value of your time and underestimate your need for funds. If you fit this description and this tool recommends that you spend more money or reduce the number of hours you work, please be very careful about acting on its advice.”

With that disclaimer, let’s jump in and see how it works.

How it works

First, the survey asks you some basic questions about your current work. How much are you paid per hour? How much do you enjoy your job? This survey serves as a point of reference for all of your decisions.

From there, you are presented with four scenarios. In answering these questions, you should consider the numbers, yes. But you should also consider how busy you are, how much you enjoy your job, and how much you like or dislike the task presented in each hypothetical. It’ll make more sense when we look at each scenario.

Scenario 1: The wage you’d accept for 1 hour of work

In their first hypothetical, they want to know how much you’re willing to work per hour if you lose your job so they ask you to determine the minimum hourly wage you’d accept for a similar job that you like just as much and that would require the same number of hours per week. (You should also suppose that you can easily find another similar job even if you passed up this new opportunity.)

Of course, in answering this, you want to consider how much you’re earning now. So basically, how much lower would you be willing to go for the same workload and type of work? Your answer helps determine how much you value your work time.

Scenario 2: How much you’d spend on a time-saver

If there was a tool that could save you time, how much would you be willing to spend on it? This helps them gauge how much you’re willing to pay for your free time.

Scenario 3: How long you’d wait for a gift

In the third scenario, they want to know how long you would spend waiting in line for a gift card. For me, this value varied considerably from the first two, because I don’t enjoy waiting in line, even if I am being mildly entertained. So I’d rather skip out on the gift and work in that time, or just do nothing. Still, it’s a good hypothetical because it helps round out your value.

Scenario 4: Your rate for a longer work week

If you had to take on a longer work week, how much extra would you charge for your time? Say, for example, that your company wants you to transfer to a similar job that you would enjoy just as much but that would require an extra 10 percent of your time than you currently work. You could ask for a raise to take on the new position, so they ask about the minimum total amount of money you’d accept to agree to the new job. Again, this answer helps determine how much you value your free time.

My results

After averaging out the numbers you enter for those four scenarios, Clearer Thinking gives you a dollar figure for your time. Mine was $31.25, pretty close to the standard method that I criticized earlier in this post.

But using the quiz rather than the standard method actually gave me insight into how I value my time, not how my employer values it. The customized rate for my time was only about a dollar more than my current work rate, and that’s good. I enjoy my work and I’m not overwhelmingly busy, so this makes sense.

You can get some really personalized advice based on your own numbers. Here are a few of my favorites:

“If you’re considering waiting in line for 20 minutes to get something free, ask yourself whether you’d be willing to pay $10.42 for that thing. If not, you probably shouldn’t wait.”

“If you’re thinking of buying a time-saving device (e.g. a dishwasher or garlic press), estimate how many total hours it will save you. If it costs less than the number of hours it’ll save you multiplied by $31.25, it’s probably a good purchase. So for example, if it will save you 10 hours, pay no more than $312.5.”

“If you’re debating whether to purchase an item worth $20, you should spend much less than 38.4 minutes making up your mind. If you spend longer, the value of the time you’ve devoted to deciding whether to buy the item will exceed the value of the item itself!”

The survey isn’t absolute. But then again, it can’t be. It can’t take every scenario and preference into consideration. The value of your time varies depending on how you feel about all the different ways you spend it. And sometimes your time is just priceless — it doesn’t always translate to dollars.

But if we’re going to calculate our time-value, this tool does offer insight beyond simply knowing how much your boss pays you per hour. Check it out yourself, and tell me what you think.

[Editor’s note: The “Time and Money Calculator” at www.clearerthinking.org appears to use cookies in order to recognize where you left off in their questions.]

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I especially like the point about taking longer to make a decision than the item is worth. I’ve seen this issue crop up in the workplace — when you add up all the hours people spend discussing a purchase, the cost to the company is much higher than the price.

I also think if you have kids, health issues, caregiving responsibilities, etc. you might value your time differently. For instance, you might pay more for an item at the grocery store you’re already in rather than make a separate trip. It’s easy to assume that one hour of our time is exactly like another, but it really isn’t.

Good point, Beth. Over the years I had to learn to use my time and energy more efficiently than I have in the past, especially while living with a chronic illness.

Paying $.10 more per gallon gas is a better use of my time (and gas) than driving across town for a cheaper option. Buying pre-washed, pre-packaged veggies from Trader Joe’s will cost more than buying them au naturel, but if I’m completely beat and sick at the end of the day, its a better and cheaper option than take-out.

I do the same thing at the grocery store :) For $10, I can get pre-cut vegetables and sliced chicken breast that make four meals. It’s more expensive than buying chicken breast on the bone and cutting my own vegetables, but it means I won’t go home and each cereal for dinner or buy my lunch at work the next day.

Sometimes all the “make every moment count” and “use your free time to start a side gig” talk is disheartening when the quality of an hour can vary so much.

Opportunity cost and the substitution vs income effect are powerful concepts that everyone should understand.

Economists would argue that the rising wages are what have driven more women into the workforce over the past 60 years, because the opportunity cost of staying at home (what you lose by not working) has increased significantly.

The substitution effect and the income effect exist because your time is limited. No matter how much you want to take work or leisure for 25 hours a day, you can’t. In any given day. your work + leisure is 24 hours.

The substitution effect (in regards to your wage rate) is fascinating. As you earn more, your rising wage offers an incentive to work more. As your hourly wage continues to increase, you have an income effect, which gives you an incentive to work less (eg “I’m already making 100k per year, what’s an extra grand?” or “I can pay my bills/maintain the same standard of living but work 10 hours less a week? Sign me up!”). On the backwards sloping portion of the curve, the income effect is so strong that you work less because your free time (leisure) becomes more expensive as your wage goes up.

You may complain that you don’t have the option to set your own hours. While true for the majority, don’t get hung up on that. The theory is the same, and is still useful as you look at side hustles/time cost to save money doing this or that.

Actually, economists would not argue that rising wages are what’s responsible for more women in the economy. There’s a lot of explanations, but given that wages for most workers have been stagnating even while women’s lfp has been increasing…

Current en vogue explanations are access to fertility control enabling women to invest more in human capital. But there’s other things like removing barriers to women’s work (explicit marriage bars, for example), increased need for clerical workers, etc. Depending on what time period you’re talking about.

Claudia Goldin’s book on the topic traces things out historically, though her arguments about the effects of access to reliable female-controlled birth control come later.

I did this tool about 6 months ago and mine was $219 an hour. It is flawed in that if you are busy, it will take me a lot of money to do something else, as well as if you already have a high wage, you are also skewed.

I don’t know how to make it better but I would easily bend over to pick up a dollar bill, or spend 10 minutes to save 10 bucks. So it depends on what exactly you are using it for, and how the questions are geared to determine your answers.

I find I just need to prioritize everything and put the most amount of my time toward the most valuable things. I can be mediocre at a lot of things or great at a few. I’d rather be great and learn to say no or assign the tasks to other people to get done. Now that my salary is higher I really look at this a lot more. When we completed our backyard I hired someone to do it even though I have the skills to do so. It was more valuable to me to spend time with my family than digging dirt, plus I would be exhausted for days. 10 years ago I probably wouldn’t have said that because my salary was lower and I had much more free time.

I did. I think the editors took it out because they were wary of the cookies the site uses to keep track of your progress in the test, per the note at the bottom. You can go to ClearerThinking.org and click on the time and money calculator.

An interesting tool. However, there are so many variables to both time and money. I remember years ago, I had a seven minute commute to work. I could have taken a job in Silicon Valley for much higher pay, but the commute would have been two to two and a half hours, depending on traffic.

I calculated that I would have needed a 30% increase in pay to equal what I was getting hourly based on door-to-door time. Plus there was the cost of gas, the wear and tear on the car, and the wear an tear on me. So I didn’t take the Silicon Valley job.

However, I didn’t take into consideration the stock options that the company was giving to employees. Within a couple years, I would have had over a million dollars from the stock options. It is so hard to predict all the variables and unknowns.

It’s always a good idea to work out what the value of your time so you can have something to measure yourself against. The more you can earn the more value you can add to your time. Great thought provoking post. Thanks for sharing.

I love this! I value my time more than most things. For example, I hire someone to cut my grass so I can invest that hour doing something more productive, like reading, writing or working on my blog in general. I will get more out of that hour by investing in myself than I would from saving 30 bucks to do my own yard. It’s not worth the savings to me. I’m heading over to calculate my time now!

I like this concept, but I find it difficult to apply to the food service industry. When you’re a server, standing around in an empty restaurant for an extra hour earns you about $2.50, depending on where you live. A full dining room with good turnover is necessary, yet unpredictable. It’s incredibly frustrating to quantify.

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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